The IRS issued a news release (IR-2020-04
) on Feb. 26 confirming that taxpayers must generally file amended returns to claim most tax benefits renewed retroactively for 2018. The IRS is currently working to update 2018 forms to allow for amended claims, but provided no timetable for when the forms would be ready.
Legislation passed at the end of 2019 retroactively reinstated many of the “extender” tax provisions that had expired at the end of 2017 (see our Tax Legislative Update for more information on the bill). Most of these provisions were extended both retroactively for 2018 and 2019 and prospectively for 2020. Major businesses provisions that were reinstated for include:
- The biodiesel and alternative fuel tax credits
- The railroad track maintenance credit (extended through 2022)
- The Section 45L credit for energy-efficient new homes
- The Section 25C for energy-efficient home improvement
- The Section 179D deduction for energy-efficient commercial building property
- The Indian employment tax credit under Section 45A
- The three-year depreciation for racehorses
- The seven-year cost recovery for motor-sports entertainment complexes
- The special expensing for film and television and live theatrical productions
Major individual provisions that were reinstated include:
- The above-the-line deduction for qualified tuition and fees
- The deduction for mortgage insurance premiums
- The exclusion for principal residence debt forgiveness income
- The reduction in medical expense deduction floor
The legislative language required the IRS to offer expedited procedures for claiming many of the fuel excise tax credits (see our story, “IRS offers expedited fuel tax credit refunds
” for these procedures). In addition, existing rules allow taxpayers in some circumstances to claim certain retroactive 2018 depreciation deductions, such as Section 179D, on 2019 returns with a change in method of accounting on Form 3115. But many taxpayer were unsure whether the IRS would offer any additional administrative relief to allow taxpayers to claim other 2018 incentives without needing to amend 2018 returns.
The release confirms that taxpayers must generally file amended returns to claim other benefits renewed for 2018. The release indicates that 2018 forms “are being revised to reflect legislation,” but offered no definitive timeframe for when updated forms would be available. Most 2019 forms have already been updated, and the IRS news release also offered information for electing the alternative application of the “Kiddie Tax” regime for 2019 and details on relief available to taxpayers affected by federally declared disasters.
The ‘Kiddie Tax’
The legislation reversed a change to the Kiddie Tax made by the Tax Cuts and Jobs Act, which required a child’s unearned income to be taxed at trust rates instead of the parents’ rates. The change is generally effective beginning in 2020, but taxpayers can elect to apply it for 2018 and 2019. The original TCJA provision was moderately helpful to some high-income taxpayers because the trust brackets allowed more capital gains and dividends to be taxed at the zero and 15% rates. But it was unfavorable for many children of lower-income taxpayers, particularly those receiving survival benefits or scholarships.
For the 2019 tax year, taxpayers can make the election by completing Form 8615 and including a statement specifying “election to modify tax of unearned income” with their return. More information is available in the Instructions for Form 8615
under Part II Tax. Taxpayers seeking relief for 2018 must wait for the IRS to release updated forms to amend their returns.
Taxpayers may claim most 2019 incentives as usual on their 2019 returns. Taxpayers with fuel tax credit claims for 2018 and 2019 should assess whether they qualify for expedited procedures for immediate refunds. Taxpayers making retroactive 2018 depreciation changes should evaluate whether any of the benefits can be claimed with an accounting method change on the 2019 return. Taxpayers qualifying for other 2018 benefits should monitor IRS releases to file an amended return when 2018 forms are updated.
Managing Director, Washington National Tax Office
Grant Thornton LLP
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